End March portfolio
My YTD return per month of this year was as follows:
Jan +1.4%
Feb +17.6%
Mar +17.4%
It looks like I’ve been quite active in the year, but my core positions were on the scoreboard for the full year. I had a number of smaller “question mark” positions which had to prove that they belonged in the portfolio, mainly by qualifying with accelerating growth, and most of them didn’t make the bar. That’s why I exited my test positions in Pure Storage, Dlocal and Shift4. In hindsight I probably should have kept those positions smaller.
I sold Nvidia last week, and I’m probably in the minority here, but this is now the third most valuable company in the world at more than $2 trillion, second only to Microsoft and Apple (both with incredible recurring revenue streams); more valuable than Saudi Aramco (ditto) and more than double Berkshire Hathaway (ditto). And the vast majority of Nvidia’s revenues are of a non-recurring nature. Selling things: datacenter kit - and ultimately cyclical in nature. Do I see it doubling or even going up by 50% (i.e. increasing by $1 trillion!!!) from here? No. I know others do, and I hope it’s a good investment for them but I just don’t see it.
I am aiming to give a bigger weighting to faster-growing companies in my portfolio, as I believe that growth may be under-priced at the moment:
Source: The Rule of X - Bessemer Venture Partners
I’m ahead of the indexes so I’m happy.
Comments on the companies in my portfolio
Below I’ll comment briefly on each company and why I own it, and the YTD move of the company (so not my return), and a rule of 40 calculated on (adjusted) operating margin.
Axon (+21.1% YTD) Axon just grew 29% in the last quarter and delivered a 21% operating margin for a rule of 40 of 50. NRR stayed stable at 122%. The company is as solid as they come imo. They are dominant in their market and have a very fast-growing software/IoT business under the hood, that is becoming ever larger as a proportion of total revenue. Cloud revenue grew at 44% and is now 38% of total revenue. But a key reason that this is my top position are the forward-looking metrics. ARR grew 47% and their already huge RPO grew 54%. That’s a nice “but there’s more” story to me: Revenue grew nicely at just below 30%, cloud revenue grew much faster, ARR grew faster than Cloud, and RPO faster than ARR.
ELF (+35.8% YTD) ELF just grew revenue 85% and delivered 12% operating margins for a rule of 40 of 97. I know it’s not SaaS, but who made the rule that you can’t measure companies using the same measuring tape. This is an asset-light company growing like weeds and I’m very happy to have this as a top position. If growth were to be given a higher weighting (say 2x or 3x) vs margin/profitability, then this company is one of the very best ideas out there imo.
Transmedics (-6.3% YTD) They just grew 159% yoy with a 3% operating margin, for a rule of 40 of 162. If growth was weighed more then this would be the best “rule of x” company that I could find - I would be ecstatic if someone could point to another one out there. They gave an extremely confident earnings presentation and seem to be accelerating their logistics plans. I really cannot find fault here, and don’t understand people’s hesitancy on the stock. The business is predictable, they have a very strong moat and top-notch leadership who know the industry backwards. Given that growth is what I am looking for, this is one of my top positions. I built this position up, given that the stock has underperformed YTD.
Monday (+20.3% YTD) Revenue grew 35% with operating margins of 10% for a rule of 40 of 45. Very steady and impressive improvement of all margins over time, and with a multi-product approach that is starting to gain traction. The big kicker for me in their latest ER was their >50k ARR customers (a forward-looking metric) which grew by 56%, and in absolute number of customers was a quarterly record at +218 customers.
Snowflake (-18.8% YTD) Snowflake has been a big drag on my portfolio and the drop after results and the news of Slootman leaving of course didn’t help. Revenue grew 32%, operating margin was 9% for a rule of 40 of 41. I decided to increase my position after results. I believe that they are setting up the new CEO for success (who has great credentials and is the right person for the job at this point in time imo). The guidance took all the possible bad news on the nose but didn’t incorporate any of the potential good news. The stock is still relatively (ok very) expensive but at the current $161 we’re getting closer to the price that Buffett paid before IPO three years ago ($120 if memory serves). They have a huge number of the very largest companies on earth as customers and I just cannot see them fumbling the ball at those customers, in fact I can see them leveraging that to their advantage. I may increase my position further.
Celsius (+52.1% YTD) They just grew revenue by 95% and came in with an operating margin of 19% for a rule of 40 of 114. If we weigh growth more, then this company, together with ELF and Transmedics are the top ones in my portfolio. Recent Nielsen tracked channel volume growth estimates came in at 75% yoy and price increases at 4.7% for a total of 80% yoy in tracked channels - i.e. only some of the routes to market. Given that analysts seem to expect revenue growth to drop off a cliff for them (consensus if for 51% in Q1 dropping to 36% in Q4) even as they announced further international expansion to Australia and the UK and the US is firing on all cylinders, I’ll be looking to increase my position to a top one in the days ahead.
Samsara (+13.2% YTD) grew revenue by 37% (48% including the extra week) and delivered an operating margin of 5% for a rule of 40 of 42 and with a 120% NRR. All numbers impressed. All margins improved, ARR grew 39% and customers with >100k of ARR by 49% and those with >$1m by 61%. Extremely impressive. So why did I trim? Well, that extra week tbh (remember they have a funny year-end which adds a week to their Q4 every couple of years including the just reported one). Every metric for a growing company with improving margins will look better if you throw in an extra week of business. They told us how much of the revenue growth was due to the extra week, but not the other metrics. ARR will look better, customers with >x ARR will look better, NRR will look better as it’s based on ARR, margin growth will look better. So I worry a bit about the upcoming Q1. Will the market be disappointed due to the quarter simply having the right number of weeks vs the previous one that had a week too many? I suspect so. So I won’t be increasing this one too much; I may even reduce it somewhat.
Remitly (+6.8% YTD) grew revenue 43% and delivered a 4% operating margin for a rule of 40 of 47%. But they have a bit of a problem: their cash flows from operating activities fluctuate and was again negative in the last quarter after briefly going positive the quarter before. I reached out to their IR department about their cash flow profile but they have not yet bothered to answer me. Here is what I wrote to IR. I framed the question as trying to understand their free cash flow profile, and specifically the impact that their disbursement prefunding and customer funds receivable have on their cash flows. They seem to have painted these as simply timing matters in prior ER’s but it seems to me that it is part of their business model. This is an extract from my (still unanswered) mail to their IR (I’m quoting their CFO below):
The recent comments around this topic that I could find were as follows:
Q2 2023: “It is important to note that our cash and working capital balance at the end of the second quarter was impacted by timing as the last day of the quarter was on a Friday ahead of a multi-holiday weekend. We generally have higher prefunding amounts reflect in our balance sheet if the quarter closes before a weekend or in advance for a long weekend such as a holiday. This creates variability in customer transaction related balances period-over-period and can temporarily reduce our cash position at a particular point in time.”
Q3 2023: “Similar to last quarter our reported cash balance as of September 30, was impacted by timing as the quarter ended on a weekend, when we typically have higher prefunding requirements to ensure funds are available to our customers.”
It would seem that the comments indicate that timing is largely responsible for swings in in-quarter cash flows.
I have calculated the quarterly impact per quarter of the two lines in the cash flow statement of “Disbursement prefunding” and “Customer funds receivable” as follows:
Combined $m Q1 Q2 Q3 Q4 2022 48 -117.8 -18.6 -76.9 2023 25.5 -89.2 -63 -88.5 → Therefore it would seem that there is an outflow from disbursement prefunding and customer funds receivable which is inherent in your business model and not only a temporary phenomenon as it happens in all quarters except Q1 of your financial year.
My question is whether there are other publicly available commentary that you have disclosed around this matter in the past, and whether my conclusion above is correct.
I think this is still a worthy company to have in the portfolio, but I do want to understand their cash flow better before concluding on that. I will keep it small until they either decide to answer me or an analyst asks the question and has it answered in an ER.
Aspen Aerogels (+11.5% YTD) Revenue grew by 41% in the last quarter and adjusted EBITDA was 11% for a rule of 40 of 52. This company sells things (thermal barriers), is capital intensive (they have factories) and the gross margin is relatively low at 35%. So why am I interested? I think this stock could triple or more in the next years if all goes according to plan. And that seems to be the case. They have years of R&D and patents as a moat, a relatively stable business selling to large industrial customers, and a new exciting piece of business. The big driver of their growth has been a relatively new part of their business which sells thermal barrier material to EV and hybrid auto manufacturers (not Tesla). Without doing a deepdive, here are some of the numbers that have me excited.
Revenue ramp of their thermal barrier business (to the likes of Ford):
| Thermal Barrier $m | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 1.0 | 5.7 | ||
| 2022 | 8.0 | 11.0 | 12.0 | 25.0 |
| 2023 | 11.7 | 12.6 | 32.8 | 52.9 |
Yoy this is what that growth translates into:
| Thermal Barrier $m | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2022 | 1100% | 339% | ||
| 2023 | 46% | 15% | 173% | 112% |
Thermal barrier revenue was 68% of total revenue in Q4.
And margins are rapidly improving:
| GP % | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 14.1% | 14.5% | 10.1% | -5.3% |
| 2022 | -4.7% | -2.7% | -17.3% | 24.1% |
| 2023 | 11.2% | 17.5% | 22.7% | 35.0% |
| Adj EBITDA % | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | -9% | -11% | -26% | -39% |
| 2022 | -38% | -40% | -63% | -8% |
| 2023 | -30% | -22% | -12% | 11% |
→ Adjusted EBITDA turned positive for the first time in 3 years last quarter.
It’s valued at 4 times run-rate sales and 17.6 times run-rate GP. I find it a very interesting company to keep watching. If they continue to execute, this could turn out really well.
And that’s it from me. Hope you all have a good Easter weekend.
-wsm
Previous reviews
Dec 2023 full-year
Dec 2022 full-year
Dec 2021 full-year
Dec 2020 full-year